Casualty actuaries can help insurers meet the demand for new products by identifying, analyzing and pricing new risks, according to two speakers at the srping meeting of the Casualty Actuarial Society.

Since the mid-1980s, casualty insurance has shrunk as a share of gross domestic product. Since then, insurers have been able to push liabilities out of the insurance space, said Parr Schoolman, a fellow of the Casualty Actuarial Society and a senior managing director at Aon Benfield. For example, the multi-billion-dollar BP oil spill has been primarily borne by the oil industry.

While that has helped short-term profits, it hurts long-term growth, he said. Many of the 40 largest insurers in the 1980s have disappeared in a bevy of mergers and a few financial flameouts.

To survive, he said, insurers need to learn how to manage new risks, not just exclude them. Actuaries can help, he said, by encouraging companies to use enterprise risk management techniques.

Schoolman separated risks into two types: sudden and gradual. The sudden accidents, like car wrecks, tornadoes, and hurricanes, are what occur to most people when they think of insurance. Insurers generally handle these well, he said. They know how to monitor the risk and make sure they haven’t taken on too much.

The other risks are gradual. They emerge slowly. Schoolman compared these to the mythical frog dipped into a pot of water brought slowly to a boil. Before the frog realizes the water is hot, he is cooked.

The underwriting cycle, Schoolman noted, seems a lot like the soon-to-boil frog. Trying to hold market share, companies loosen coverage terms. Then they let rates dip. Then reserve inadequacies creep in.

Asbestos, of course, is a classic example of a gradually emerging risk. But there are others. Changing technology, he said, is another example. An emerging technology can leave insurers covering risks they never contemplated.

Enter nanotechnology. Elements can have far different properties at the atomic level than they display when we see them in the everyday world. Scientists have learned how to rearrange atoms so we can get the benefit of the atomic-level superpowers.

That’s why anti-aging cosmetics can seep deep into human’s pores. It’s why lifeguards no longer have white stuff on their noses. Manufacturers harnessed the atoms and revolutionized moisturizers and sunscreens, and hundreds of other products.

The potential is tremendous. Nanotech products may one day zap tumors or make drugs more effective. They could make batteries last longer or make materials stronger and lighter.

“A lot of really wonderful things are going to happen because of nanotech,” said Charlie Kingdollar, vice president and emerging issues officer of General Reinsurance Corp.

But nanotech products are lightly regulated and their long-term effects are not well understood.

Nanotech is growing fast – so fast that reliable data is hard to find and may be out of date by the time it is published.

There are more than 5,400 nanotech firms globally, Kingdollar said. Every state has at least one nanotech manufacturer, with California having the most.

The federal government encourages the industry, spending $1.6 billion a year. The vast majority is in product development. Little is spent studying short- or long-term effects.

There are few labeling requirements. Many manufacturers, he said, have failed to test the safety of their product.

And some early tests show risks, such as dying brain cells or genetic cellular damage. Some products pass through the skin and are distributed throughout the body, with effects unknown. Others appear to kill human liver and skin cells. Several studies have linked carbon nanotubes to asbestosis and mesothelioma.

Two-thirds of firms and universities fail to conduct toxicity tests on nanomaterials. At many, employers protect themselves with nothing more than paper masks. More than a third don’t require masks.

“We’re not spending a whole lot of time and money on environmental safety,” Kingdollar said.

The exposure to insurers has been growing. The technology is more than a decade old, and Kingdollar points to a list of nanotechnology products: flame retardants, fertilizer, pesticide, toaster pastries, drink mix, marshmallows, salad dressing and frying oil.

As the exposure grows, the insurance industry has reacted slowly. Few applications ask about nanomaterials: “I haven’t seen one,” Kingdollar said.

Standard policies don’t specifically exclude nanotech products. It’s not clear whether courts in all jurisdictions would apply a policy’s pollution exclusion.

“By and large our industry is pretending this is something in the future,” Kingdollar said. Instead, “it’s already here. The question is what are we doing about it.”

Kingdollar quickly noted that not all apparently emerging issues do, in fact, emerge. And he doesn’t think nanotechnology will be the ever-feared “next asbestos.”

“I don’t think there will be another asbestos,” he said. “We move a whole lot faster than we did years ago.”

But actuaries can help insurers handle this particular emerging risk, Schoolman said. They can encourage underwriting discipline. They can help integrate pricing, planning and reserve setting to manage the underwriting cycle.

And they can help underwriters develop insurance policies to handle new products, like those a nanotech firm might need, he said. They can help even though they lack the traditional actuarial building block – data.

Actuaries are keen analysts, he said. Their ability to analyze a situation can help develop a product and a rate – even without very much data. The key, Schoolman said, is to look for opportunities within each new risk.